Global rating agency Moody’s has warned that the recent standoff over violence in Kashmir could set back Pakistan’s economic reforms.
Relations between the nuclear-armed neighbors have deteriorated following Pahalgam attack that killed 26 people on April 22.
Moody’s said the standoff could hurt Pakistan’s $350 billion economy, which is on a path to recovery after securing a $7 billion bailout program from the International Monetary Fund last year and staving off a default threat.
“Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation, setting back Pakistan’s progress in achieving macroeconomic stability,” Moody’s said.
“A persistent increase in tensions could also impair Pakistan’s access to external financing and pressure its foreign-exchange reserves,” it added.
The report comes two days after Reuters reported that India has asked the IMF to review its loans to Pakistan.
India’s economy is not expected to see major disruptions since it has “minimal economic relations” with Pakistan – although higher defense spending could weigh on New Delhi’s fiscal strength and slow fiscal consolidation, Moody’s added.
